Magazine article The CPA Journal

N.J. Tax Court Decision Reinforces Strict Interpretation of Sales Tax Exemptions

Magazine article The CPA Journal

N.J. Tax Court Decision Reinforces Strict Interpretation of Sales Tax Exemptions

Article excerpt

The New Jersey Tax Court recently held that a state-mandated 10% impost fee added to the cost of New Jersey Nets basketball tickets was subject to sales tax. The fee was recorded as a liability payable to the New Jersey Sports and Exposition Authority (NJSEA) and was dedicated for the statutory purpose of constructing and operating professional sports facilities in New Jersey (Meadowlands Basketball Assoc. v. Dir., NJ Tax Ct., Dkt. No. 00665-98, 9-82000). The decision has been appealed to the New Jersey Superior Court (App. Div., Dkt. No. A-187-00T1).


The plaintiff was the New Jersey Nets professional basketball team. During the tax period April 1, 1993, through March 31, 1997, tickets for Nets games included a separately stated admission charge, a 10% impost fee, and sales tax imposed only on the amount of the admission charge. At the conclusion of the basketball season, the entire amount of the impost fee was transferred to the NJSEA, a state agency entitled to a sales tax exemption under NJSA 54:32B-9(a)(1). The court recognized that, if the NJSEA was the purchaser, user, or consumer of the impost fee (i.e., it purchased goods in its own name), the fee would not be subject to sales tax but held that in this particular case the transfer of funds would not be deemed a direct purchase by the NJSEA.

The Court's Holding

The court refused to allow the Nets to claim the sales tax exemption of the NJSEA for the impost fee, reasoning that, although the agency was the beneficiary of the charge, it was not the purchaser, user, or consumer as required by NJSA 54:32B-9(a)(1). The court also noted that a separate subdivision of the same statute, NJSA 54:32B-9(f), limits the sales tax exemption for admission charges to "athletic games or exhibitions only when the proceeds inure exclusively to the benefit of elementary or secondary schools." Because there was no New Jersey court precedent on the issue, counsel for the Nets presented a similar case from the New York Division of Tax Appeals, In re: Buffalo Bills [(1988) NY LEXIS 490]. Although it admitted the similarities between the New York decision and the New Jersey statutes at issue, the court refused to be bound by the decision of a New York administrative tribunal.

Alternate argument. Nothing in the decision indicates that the court considered any argument that the impost fee was a tax which was not considered with in the ambit of the definition of taxable receipt under Nf SA 54:32B-3 and associated regulation NJAC 18:24-1. …

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